menu
Sign up

Amram Inc

Question 28
Multiple Choice

Amram Inc.can issue a 20-year bond with a 6% annual coupon at par.This bond is not convertible,not callable,and has no sinking fund.Alternatively,Amram could issue a 20-year bond that is convertible into common equity,may be called,and has a sinking fund.Which of the following most accurately describes the coupon rate that Amram would have to pay on the second bond,the convertible,callable bond with the sinking fund,to have it sell initially at par? A) The coupon rate should be exactly equal to 6%. B) The coupon rate could be less than,equal to,or greater than 6%,depending on the specific terms set,but in the real world the convertible feature would probably cause the coupon rate to be less than 6%. C) The rate should be slightly greater than 6%. D) The rate should be over 7%. E) The rate should be over 8%.

Related questions
Q 29
Tucker Corporation is planning to issue new 20-year bonds.The current plan is to make the bonds non-callable,but this may be changed.If the bonds are made callable after 5 years at a 5% call premium,how would this affect their required rate of return? A) Because of the call premium,the required rate of return would decline. B) There is no reason to expect a change in the required rate of return. C) The required rate of return would decline because the bond would then be less risky to a bondholder. D) The required rate of return would increase because the bond would then be more risky to a bondholder. E) It is impossible to say without more information.
Q 30
A 10-year corporate bond has an annual coupon of 9%.The bond is currently selling at par ($1,000).Which of the following statements is CORRECT? A) The bond's expected capital gains yield is zero. B) The bond's yield to maturity is above 9%. C) The bond's current yield is above 9%. D) If the bond's yield to maturity declines,the bond will sell at a discount. E) The bond's current yield is less than its expected capital gains yield.
Q 31
Which of the following statements is CORRECT? A) A zero coupon bond's current yield is equal to its yield to maturity. B) If a bond's yield to maturity exceeds its coupon rate,the bond will sell at par. C) All else equal,if a bond's yield to maturity increases,its price will fall. D) If a bond's yield to maturity exceeds its coupon rate,the bond will sell at a premium over par. E) All else equal,if a bond's yield to maturity increases,its current yield will fall.
logo
© 2020 QuizPlus. All Right Reserved